Cyprus and the EU: Procurement, Politics, and Economics

As a procurement organization, how would you like to meet all of your goals only to have them raised by another 30% in the final month of the fiscal year? Or to be told you had to accomplish the same results for the next quarter with an immediate 20% reduction in headcount? These are the types of unreasonable expectations that occasionally permeate organizations without a strong grasp of the capabilities, requirements, responsibilities and results potential of even a solid performing procurement organization.

Yes, they’re unreasonable – from an informed perspective. But demands like this can happen. And they oftentimes result in shell games being played around budgets, resource allocation and FTEs. On a much larger level, a similar game is being played on the European and EU stage right now, but the stakes are even higher than the potential insolvency of an organization.

Many countries in the EU are effectively bankrupt (and have been, without the effective restructuring of debt). The latest ploy that made headlines in Cyprus this week called for seizing accounts (in exchange for bank stock) above the insured deposit level in key banks. Further limits have been placed on citizens as well, including a daily withdrawal limit from accounts (under $383 at the current euro exchange) and payment limitations.

The BBC also reports that, “as well as the daily withdrawal limit, Cypriots may not cash cheques … payments and/or transfers outside Cyprus via debit and or credit cards are allowed up to 5,000 euros per person per month … [and] Transactions of 5,000-200,000 euros will be reviewed by a specially established committee, with applications for those over 200,000 euros needing individual approval.”

One may look at what’s happening in Cyprus as a one-off situation. It’s not. It’s the latest shell game (albeit with arguably the most stringent strings attached) to bail out yet another bankrupt country. The danger is of course the continued destabilization of the European economic community and Eurozone. We must all remember that Cyprus is not a stand-alone small state – it is part of the EU. And if CFOs who do business in Europe are worried about their access to capital in certain countries (i.e., liquidity), much could happen as a result.

Consider the following basic treasury and supply chain questions:

  • How do we pay our suppliers?
  • Can suppliers access capital (which is technical “in their account”, but may be seized)?
  • How will suppliers and companies affect cross-border transactions given limitations?
  • What will happen to our supplier’s loans and debt, especially if convenents are modified?
  • How will suppliers manage working capital with such uncertainty (and how will they pay their suppliers)?
  • How will this upheaval impact the physical flow of goods?
  • What will the impact have on currency and commodity pricing and volatility,  – regionally and globally? What will inventory and stock look like for base and semi-finished materials?

In procurement, we must always keep in mind the secondary and tertiary impacts of political, trade and economic policy. A few years ago, it was China’s rare earth hoarding (and of course today, issues of Chinese price fixing and dumping, such a recent case involving selling stainless sinks for export under the cost of production, continue to make the headlines).

But these cases are innocuous compared to the destabilization of entire countries, regions and currencies. Procurement must become a gatekeeper for their companies examining the impact of these aspects of supply risk. In our role and approach to risk, we must go beyond considering more recent concerns not only involving company trade policies, but basic supplier financial stability, supply chain traceability/compliance (e.g., conflict minerals) and natural disasters as well.

Just as procurement centers of excellence (COEs) are increasingly taking charge of reporting and forecasting for categories, centralized teams and procurement leaders should have a perspective and action plan for politics, economics and trade on the global stage. Don’t think for a minute that some company economist or regional/divisional controller has a plan for picking up the management of your supply chain and suppliers when crises strike. It’s up to all of us to preemptively take action by developing a point of view and pre-emptive intelligence to make informed decisions as quickly as possible.

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